The consequences of Brexit on Services and Establishment

Different Scenarios for Exit and Future Cooperation

Prof. Dr. Friedemann KainerUniversity of Mannheim

28 February 2017IMCO workshop on Implications of Brexit

European Parliament

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Structure of the Presentation

1. Trade in Services and Establishment: Challenges for Market Integration

2. Services and Establishment: Conditions for Integrated Markets

3. Service Markets and Establishment under the EEA and International Trade Regimes

4. Challenges for EU-legislation: transitory measures to match legitimate expectations

5. Conclusion: Challenges for Negotiating

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Trade in Services and Establishment: Challenges for Market Integration

• specific barriers to trade in services and cross border establishment• barriers to trade are difficult to identify

• regulations on services and establishment often address the service supplier

• services may need temporary access of staff or establishment

• liberalizing trade in services can require regulation• common standards for licences or diplomas …

• …allows mutual recognition of standards (e.g., licences, diplomas)

• ideal solution: country-of-origin-principle, “passporting”

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Services and Establishment: Conditions for Integrated Markets

• negative integration• removal of hindering regulation

• access to the market, competitive equality (national treatment)• may lead to mutual recognition of standards and supervision

• positive integration• approximation of standards

• eases mutual recognition• cuts off justification of restrictions• allows passporting

• scope• commitment/annex method in international trade law • positive/negative list approach

• reliable, enforceable subjective rights• transparent, applicable law; rule of law, direct effect• judicial review, legal unity

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Service Markets and Establishment under the EEA

1. Substance of Law• largely aligned to the EU single market law

• negative integration: fundamental freedoms of TFEU applicable

• positive integration: EEA incorporates EU single market law into EEA law

• scope: comprehensive, only few exceptions in the treaty

2. Quality of Law• EEA law does not have direct effect

• Member States are obliged to transpose law into national law with direct effect

• judicial review: EFTA Court, ECJ

3. Assessment • comprehensive integration of service markets

• jurisdiction of the CJEU/EFTA-Court

• passporting

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Service Markets and Establishment under a Customs Union: EU – Turkey Customs Union

1. Substance of Law• negative integration: freedom of services as a stand still clause; Association Council opened

negotiations on further market access

• positive integration: only goods are covered by way of reference to EU secondary law

• instrument rather for goods; services are normally not subject to tariffs

2. Quality of Law• international law, but direct effect in EU (no reciprocity)

• judicial review: ECJ

3. Assessment • customs union as such has only little effects on the freedoms of services and establishment

• often basis for closer integration (e.g., Andean Community, Eurasian Economic Union)

• no passporting

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Service Markets and Establishment under CETA

1. Substance of Law• negative integration:

• national treatment; most-favoured-nation treatment; market access; domestic regulation shall not be arbitrary (clear, transparent, objective)

• temporary entry/stay of natural persons fur business purposes• positive integration: framework to facilitate a regime for the mutual recognition of

professional qualifications (purpose: future mutual recognition agreements – MRA)• scope: negative list approach (but: positive list for the temporary entry of contractual

service suppliers and independent professionals)

2. Quality of Law• international law, no direct effect (“no private rights”) • judicial review: investor-to-state arbitration; dispute settlement

3. Assessment • ambitious approach; but: parties can require national license, registering or

qualifications• no automatic mutual recognition – potential for development• no passporting

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Service Markets under World Trade Law (GATS)

1. Substance of Law• negative integration:

• national treatment; most-favoured-nation treatment; market access• mutual recognition: framework for further negotiation• domestic regulation: shall be administered in a reasonable, objective and impartial manner

• positive harmonisation: none• scope: unilateral commitments, positive list approach

2. Quality of Law• international law; no direct effect• Dispute Settlement Understanding

3. assessment• UK will remain a member of GATS (details are controversial)• commitments can be fixed unilaterally • no passporting

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Service Markets and Establishment: Step Back after Brexit

European Union CETA FTA EU-S. Korea GATS

Negative Integration Art. 56, 49 TFEUmarket access, national treatment

Art. 9.6, 9.3: limited market access, national treatmentArt. 8.1 ff.: limited market access for investment

Art. 7.5 f., 7.9 f:limited market access, national treatment

Art. XVI, XVII: limited market access, national treatment

Mutual Recognition Art. 56, 49 TFEU, Principle of origin

framework to de-velop MRA (Art. 11)

mechanism on negotiation of MRA

framework for further negotiation

Common Standards Art. 114, Art. 62, 53 TFEU

(-) (-) (-)

Scope not restricted negative list positive list positive list, uni-lateral

Direct Effect yes no no no

Judicial Review CFEU arbitration, restricted restricted restricted

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Services and Establishment under CETA:Market Access in Detail

EU CETA

Market Access in the Treaty Law

Art. 56, 49: right to access markets free from unjustifiable discrimination andhindrances (e.g., national diploma)self-executing mutual recognition

Art. 9.6, 8.4: prohibition of free fromunjustifiable discriminations and quantitative restrictionsno self-executing mutual recognition

Secondary Law

numerous regulations and directives (see EU mapping: overview of internal market and consumer protection related legislation)

negotiation to achieve MRA

Enforcement of Law direct effect, legal review CJEUno direct effect, arbitration in investment disputes

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Example: Cross-Border legal Service or Establishment of a Law Firm

market access under Art. 56, 49

TFEU

recognition of legal diploma, directives

77/249/EE,

98/5/EC

in principle: full freedom to offer

legal servicesEU

market access under Art. 9.6, 8.4

no MRArestrictions apply under

Annex ICETA

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Challenges for EU-legislation: Transitory Measures to Match Legitimate Expectations

• the problem: service providers and established persons from UK

• the legal issue: • when Brexit becomes effective: UK citizens lose rights under Art. 56, 49 TFEU

• expl.: recognition of an English companies (Private Ltd.) in Germany

• is there a legal obligation to enact transitory measures?

• possible legal approach:• legitimate expectations

• representation of continued existence of rights vs. Art. 50 TEU?

• acquired rights• but: restricted to property and certain contractual rights

• intellectual property rights would “survive” Brexit, right to work does not

• possible solution: intertemporal application of law for old cases

• better: EU legislation

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Conclusions: Challenges for Negotiation and Regulation

1. the design of a free trade agreement must consider the specific challenges for cross-border trade in services and establishment

2. the models CETA, FTA EU-Korea and GATS lag way behind EU/EEA• no comprehensive scope• no common standard setting • no direct effect of market access and national treatment rules

3. challenges for the negotiation process with UK• to extend the scope of the freedom of services and establishment• to find a mechanism for common standards • to shape the principle of mutual recognition as self-executing rule• to come close to direct effect and effective judicial protection

4. challenges for EU legislation: adapting secondary law